The question of where to invest has been around for time immemorial. When Covid hit, social media influencers flooded the personal finance space. It suddenly seemed as though the world had become more financially aware. However, to this day, many of us still invest in financial products that must be avoided at all costs. Today I want to explore five such investment avenues that negatively impact your wealth-creation journey.

Life Insurance

The first thing to know about insurance is that it is not an investment.

The purpose of a life insurance policy is to protect the family of the policyholder in the event of the latter’s untimely death. Moreover, a life insurance policy is only really required if one has dependents on their income. The premium that one pays on such a policy is an expense, much like the premium we pay on a vehicle – an amount paid to cover certain unforeseen risks.

An investment, on the other hand, is an amount set aside towards an asset, with the expectation that its value will grow over time. Insurance companies are no experts on investing. The reverse also holds true. They are two different fields altogether. Combining investing with insurance will provide you returns that are equivalent to the interest you earn on your savings bank account. That’s peanuts!

Don’t fall for the absolute values that insurance companies go on about. One must never opt for life insurance policies for the sake of “getting something back”. The intention must be clear – to alleviate the financial loss and hardship that a family goes through when one is no more. And for this, a term life policy will suffice.

Chit Funds

This investment avenue needs no introduction. It has been around for over a century, and has recently been in the news for all the wrong reasons.

On the surface and for the unaware, chit funds might seem like a versatile financial product. It provides both the facilities of investing and borrowing. What’s more is that the maturity periods are shorter, and with no tax liability whatsoever. However, here’s the catch.

A chit fund is formed by a group of people that come together and periodically contribute a specified amount to the fund. Later, a member may either claim the amount when needed or is given the money via a lottery system. There are a lot of regulatory gaps and there is a huge credibility risk involved in such funds. The returns offered by these are nowhere comparable to the returns offered by today’s, much more evolved, financial products. Therefore these should never form a part of your portfolio. Gullible investors have put their hard-earned money into chit funds, and have ultimately lost it all.

Penny Stocks

Penny stocks, as the name suggests, are low-priced shares of small companies listed on the stock exchange. They are called so because that is what they ought to be worth, typically trading below ₹10 or ₹20 per share.

More often than not, the reason for these stocks to be priced so low is because the company is either losing money or is on its way to bankruptcy. The prices are rigged by huge speculations and the markets are highly manipulated. For your long-term investments, penny stocks are a no-no. One must steer clear of them at all costs.

The infamous Harshad Mehta scam showed how stocks of dud companies, which were beyond hope, rose sharply and then fell drastically. Though these stocks are easy on the pocket, one must resist the urge to go for them. Don’t be lured by “quick-money”. There is no such thing.


The cryptocurrency space is highly volatile. A lack of uniform regulation, both within and across countries, makes it a risky space for investment. Even with extensive research, one can never be sure of the returns. With repeated fallout in infrastructure, crypto has also failed to fight real inflation. Not to mention the tonnes of energy consumption that all the mining and trading requires.

While there are people who have ridden the high wave of crypto and made tremendous gains in the recent past, the markets for crypto are unstable and unpredictable. Looking to incorporate crypto into your investment portfolio would not be a wise decision.

Fixed Deposits and Recurring Deposits

FDs and RDs have been the staple investment avenues for years. They are risk-free and offer a periodic interest payout as well. Although this interest is more than what we’d earn in our savings bank accounts, it still isn’t much. FD and RD account returns fail miserably when it comes to beating inflation. Which means that as inflation rises, your money is actually reducing with time. This defeats the purpose of investing.

Apart from this most evident disadvantage, FDs and RDs aren’t tax efficient either. The interest earned on these deposits are liable to tax under the head, “Income from Other Sources”.

This avenue would make sense only in two circumstances. The first is if you have a super short-term financial goal to be achieved within say a year’s time. And the second would be if you are a senior citizen with a slightly lower risk appetite. Senior citizens get the benefit of a higher interest rate, as well as ₹50,000 tax-free interest per year.

Choose Your Investment Avenues Wisely

When it comes to investing, we must be aware of the purpose of the investment, as well as our expectations. What is our investment horizon – long-term or short-term? Are the investments goal-specific, or with a focus on building wealth for the future? Is it tax-saving investments we are looking for or something that will give us regular income?

These are questions we must ask ourselves when we choose our investment avenues. Whatever the answers are, avoiding the five avenues we discussed will give you a stronger portfolio. Even though age-old paths seem safer, avenues such as mutual funds are worth giving a shot to achieve the financial independence we all strive for. The returns are real and will contribute to wealth-building.

About Author Amisha

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